FBR decides to replace GST with VAT

ISLAMABAD: The Federal Board of Revenue (FBR) has decided in principle to move towards replacing the existing General Sales Tax (GST) with Value Added Tax (VAT) across the board for all sectors under the World Bank-funded loan conditions.

Under the proposed reform plan on which the implementation was so far deferred till the establishment of Pakistan Revenue Authority (PRA) and holding of consultation with all stakeholders, it has been decided in principle that the FBR will move gradually towards replacing the existing GST and come up with the VAT mode for all sectors to ensure effective collection of real due taxes.

“In this regard, the FBR will conduct assessment surveys of different industrial/business segments under proposed reform plan,” a top official source confirmed to The News.

When contacted, FBR Chairman Shabbar Zaidi said the FBR would ultimately move towards full implementation on VAT in order to bring all sectors for contributing in country’s taxation system.

He said the Computerised National Identity Card (CNIC) condition was a move towards implementing the VAT and FBR stood firm on it. Zaidi added the establishment of PRA was deferred for time being but all other reforms including moving towards VAT was part of the overall reform agenda of the FBR.

It is relevant to mention here that the efforts made by FBR in the past to put in place VAT had miserably failed and once it had resulted in suspension of International Monetary Fund (IMF) sponsored programme during the Pakistan Peoples Party-led regime in 2011.

It is yet to see whether the Pakistan Tehreek-e-Insaf-led regime will be able to face resistance in the way of moving towards VAT or abandon its move in halfway keeping in view political consideration because it would face stiff opposition from different quarters concerned which are reluctant to become part of documentation drive.

The government and traders recently struck an agreement, however, its implementation have already faced different kind of practical problems due to the traders not wanting to come into tax net at any cost.

The proposed reform plan envisages that VAT instead of GST needs to be gradually implemented within two to four years to enhance revenues, broaden the tax-base and assist in documentation of economy.

FBR plans fully implementation on the VAT regime for all business segments over next two to four years under the World Bank funded loan project, the official added.

It is proposed that the Director General (DG) Input-Output Coefficient Organisation (IOCO-IR) would be re-designated as DG IOCO and VAT Compliance-Functional lead for VAT implementation.

Under the plan, the Commissioner Broadening the Tax Base (BTB) at each Regional Tax Office/Large Taxpayer Unit will be responsible for business level implementation whereas Assistant Commissioner of respective RTO/LTU for Value Chain Evaluation and VAT implementation will have such responsibilities.

The roadmap for VAT implementation also envisages that it would be progressively implemented across various segments commencing with Third Schedule (retail price items) products and gradually absorbing complex value chain products.

The Bureau will also ensure enactment of VAT related legislation, rules and regulations, if required. The capacity building of FBR for absorption of VAT regime (including database development and process automation) is also part of the plan.

The FBR will also finalise stages and complexities in each product value chain with time and resources for VAT assessment surveys of particular industrial/business segment. The reform plan proposed that the political considerations-voters’ constituencies and support of business communities/industrialists would also be taken into consideration for finalising its roadmap.

Originally published in The News